New York Auto Show: Car Industry on Verge of Massive Change

Despite record sales and cheap gas, auto industry experts predict a fundamental shift in how cars are sold thanks to outliers like Tesla Motors and evolving consumer attitudes. "We have to change," said one dealer.

Noting that "all pistons are firing" for the U.S. economy, Dr. Nariman Behravesh, chief economist at the consulting firm IHS Inc. predicted consumer spending this year would be around $12 trillion. "No other economy is bigger than this," Behravesh said Tuesday at the J.D. Power Automotive Forum ahead of the New York International Auto Show. "The prospects for U.S. consumer are very strong."

The strengthening U.S. economy is a positive for the auto industry, said John Humphrey, J.D. Power's senior vp global auto operations. Humphrey predicted U.S. auto sales would exceed last year's record $400 billion. "The industry's health is much better now than in the past," he said.

Despite robust sales, the U.S. car market is on the threshold of massive change, Humphrey and others industry experts at the conference said.

Consumers of all ages, particularly those of Generation Y, now enter car dealerships armed with sophisticated pricing information. The majority of consumers now consult a smartphone while negotiating, Humphrey said.

In an oblique reference to Tesla Motors — which has been mounting a state-by-state legislative campaign to be allowed to sell its cars directly to consumers, threatening the dealer-franchise model that has been in place for decades — Humphrey said, "New players are entering the marketplace. The technical sophistication of the cars has been pretty amazing. Nontraditional players are moving quite fast — will these new players be suppliers or disrupters? Who owns the value of the new technologies?"

"This business is changing dramatically," said Sandy Schwartz, president of the Cox Automotive dealership franchise. Invoking the demise of Blockbuster, Borders and the recent bankruptcy of electronics retailer Radio Shack, as well as the success of Internet retailers like Zappos and Sephora, Schwartz said the auto industry had to transform the car-buying experience to give consumers "power, control and convenience."

In a study sponsored by Autotrader, Schwartz said that only 17 out 4,002 consumers surveyed said they liked the current car-buying experience, while 72 percent they would visit dealers more often if the buying process were improved. "We have to change," Schwartz said.

Humphrey pointed to long-term trends such as the annual $20 billion budget shortfall in highway infrastructure maintenance, the increase in mass-transit ridership in 13 of the past 16 quarters and the surging growth of on-demand car services like Uber as evidence that attitudes toward driving and car ownership are fundamentally changing.